FCA launches fair treatment of vulnerable customers consultation

The Financial Conduct Authority (FCA) has launched a consultation on proposed guidance for firms on the fair treatment of vulnerable customers.

The guidance sets out the FCA’s view of what the FCA Principles require of firms to ensure that vulnerable consumers are consistently treated fairly across financial services sectors.

The FCA wants to see doing the right thing for vulnerable consumers deeply embedded in firms’ culture. Firms will need to think about what the guidance means for their business and customers, and how they are understanding and addressing the needs of vulnerable customers.

As part of the FCA’s priority to protect vulnerable consumers, it has been working extensively with stakeholders on this issue. Whilst many firms have made significant progress in how they treat vulnerable consumers, the FCA believes that there needs to be more consistency across financial services sectors. In some cases, firms are clearly failing to consider the needs of vulnerable consumers, leading to harm.

Christopher Woolard, Executive Director of Strategy and Competition said “Protecting vulnerable consumers is a key priority for the FCA and we want to see firms explicitly embedding the fair treatment of vulnerable consumers into their culture. Where we find that firms are not doing enough to ensure that consumers are treated fairly, we will take action.”

“Firms need to take particular care to ensure that vulnerable consumers are treated fairly as they may be more likely to experience harm. The guidance should drive improvements across the industry, improving outcomes for millions of vulnerable consumers”.

The guidance will be consulted on in 2 stages and the FCA is asking for comments on this first stage of the consultation by 4 October 2019.

Joanna Elson OBE, Chief Executive of the Money Advice Trust and former Chair of the Financial Services Vulnerability Taskforce, said “The FCA has sent a clear signal for firms to do more on vulnerability – rightly highlighting the significant progress that has been made by many firms, while also recognising that this progress has not been consistent across the financial services sector. n recent years many firms have expanded the breadth of their focus to the whole range of vulnerable circumstances, and demand for the Money Advice Trust’s vulnerability training has never been higher.  At the same time, we know there is much more to do.”

“We look forward to working with the FCA as it consults on this proposed new guidance, and with firms as they continue to grapple with this crucial agenda.”

Chris Fitch, Vulnerability Lead for the Money Advice Trust, said  “This proposed new guidance helpfully summarises the FCA’s expectations on firms – and its strong emphasis on areas such as product design and front-end customer services in broad terms, beyond debt collection alone, is particularly welcome.”

“The planned cost-benefit analysis appears to suggest an attempt to incorporate an element of ‘commercial realism’ in the regulator’s future plans in this space.  This will need take into account a wide range of input on what costs and benefits need to be included, and transparency will be key.”

“While the consultation on this new guidance will take place over a long period, many of the challenges it identifies need addressing right now.  My message to firms remains the same as when the FCA’s original vulnerability paper was launched in 2015 – do recognise the progress you have already made, but don’t let this delay the action that is clearly still needed.”

StepChange Head of Policy Peter Tutton said “Our research shows the extra problems vulnerable people can face and the difficulty of resolving problems. This FCA guidance is vital step to market that works well for all people. We look forward to the focus it should produce on ensuring products and services can accounts of the needs of vulnerable consumers by design.. So we welcome the FCA’s new guidance, and urge the regulator to implement it as soon as practical and to monitor it closely.”

Research earlier this year from StepChange analysing the outcomes experienced by the charity’s own clients showed that those with additional vulnerabilities – but similar underlying financial positions – made less progress in resolving their debts than other clients without vulnerabilities. This group of clients is also only half as likely as the client group overall to say they are dealing better with day to day life than before they sought debt advice, reflecting the problems that vulnerability creates – which financial firms need to factor in to their approaches. As the FCA notes, there is a strong correlation between vulnerability and poor mental health – and  debt. So the FCA’s emphasis to firms on monitoring and understanding customer outcomes is equally important.

As the FCA points out in its background, the consequences of vulnerability mean that firms should not rely on consumers being able to make rational decisions when they are affected.  make it harder for people to represent their interests. Impacts can include people being more vulnerable to mis-selling, less able to manage their affairs, and more likely to purchase inappropriate products or services due to the stresses they are under. While the regulator notes that one a case-by-case basis firms are seeking to improve their treatment of vulnerable customers, StepChange shares the view that a more systemic approach taking account of the widespread nature of potential vulnerability is far less well embedded.